Hedge fund "2 and 20" fees come under pressure – Report

Hedge funds' traditional "2 and 20" fee structure is being eroded by demanding investors who want a better deal, according to a survey by research firm Preqin. The survey found that the average hedge fund collects 1.63% for management fees and 17.21% on any performance gain, a marked shift away from the traditional industry standard of "2 and 20", as investors become more powerful in the manager/ client relationship.

Fees have been particularly pressured lower in the U.S., where the average fees are just 1.54% to manage a fund and 16.33% of performance, highlighting the power of large pension funds and endowments there who can negotiate fees lower in return for a big allocation to a fund.

In Europe, the second-biggest centre of hedge fund managers, average management fees are 1.72% and performance fees are just under 18%.
Preqin said the hedge fund industry's poor performance last year - the average fund lost 19% - may also lead to lower fees to win back investors.

Despite the erosion, hedge funds are still the envy of traditional asset managers, who typically charge 1% or less to manage a fund and don't usually get any share of performance gains.

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